A European option with a later exercise date may trade potentially for less than an otherwise identical option with an earlier exercise date.

Question

Quizplus · Accepted Answer

This is true because with a later exercise date, there is more time for the underlying asset to potentially move in a negative direction, making the option less valuable. Additionally, the time value component of the option may decrease as the expiration date approaches, further decreasing its value. Therefore, investors may be willing to pay less for a European option with a later exercise date compared to one with an earlier exercise date.

A European Option with a Later Exercise Date May Trade